EU CO2 Emission Prices Hit New Record High

Carbon quotas for December 2007 delivery climbed to 31 euros a tonne, although they eased to 30.25 euros at the close, down 10 cents from Wednesday's finish but still around historic highs.

The gains are feeding through into higher wholesale power prices and are set to be passed on to consumers via further increases in industrial and residential electricity bills, which have already risen sharply over the last year.

Carbon dioxide prices have climbed about five fold since the launch last year of the European Union's emission trading scheme, the centrepiece of the bloc's efforts to reduce greenhouse gas pollution and curb global warming.

High oil prices will trigger gains in European gas prices, encouraging power producers to burn more coal and increasing their demand for CO2 quotas as coal is much dirtier than gas.

Dry weather in Europe is reducing carbon-free hydropower output and prompting generators, especially in Spain, to burn more fossil fuel.

"Water shortages and high pressure across Europe are expected to curtail clean energy generation," Deutsche Bank said in a recent energy report.

"We expect this will place significant upward pressure on European emission and German power prices."

European gas prices are indexed to oil, so gains in crude markets feed through into gas prices, although with a lag of between six and nine months.

Oil hovered near a record high on Wednesday, boosted by uncertainty over supplies from major exporters Iran and Nigeria.

German power prices for 2007 hit record highs on Tuesday. Traders say the strong German prices encourage utilities to sell forward electricity and buy the carbon quotas they need to cover their production.

Germany is Europe's top carbon polluter. Power stations pump out 80 percent of the country's CO2 emissions, making its utilities important players in the CO2 market.